University of Phoenix
November 14, 2012
Guillermo Financial Analysis
This report for Guillermo Furniture Store will give an in-depth analysis of this company cost of capital and multiple valuation techniques as a reduction of Guillermo financial risks. With these evaluations there will be a determination of the present value net as well as base of its expected future net cash flows. This determination will be made by a variety of financial concepts that will be determined by gathering Guillermo present value of net to improve the company’s future cash flow. A brief description of the company cost of capital that is the required return for a capital budgeting project. Emery, D.R. Finnerty, J.D., &Stowe, J.D. (2007) Corporate Financial management (3rd ed) Morriston NJ. Wohl Publishing Inc. In today’s business there are all types of measures to be taken when analyzing methods of financial improvement. These measures are the ones that have been put in place for Guillermo’s Furniture in order to gather a successful outcome for the stores a better financial outcome. Valuation techniques
Guillermo Furniture is family owned company that has been around for many years and the need for valuations techniques are important to enhance growth. While the company attempts to expand and compete with the new technologically competitors, they need to understand alternatives available to them. In an attempt to understand the relationship between all the variables in the furniture business, multiple valuations are used to show the value the value. The commonly used techniques are; Discounted cash flow (DCF) analysis, comparable transactions method and the market valuation. Collectively all of the techniques help reduce risk from expanding in foreign markets. The Discount Cash Flow Valuation (DCF) would be the best technique for the organization because it uses “future cash flow projections and discounts them to establish the potential for investment” (2012). This valuation would be useful when organization is attempting to buy manufacturing machines, and eventually determine the value of the asset. The reason for this selection because it allows Guillermo the ability to estimate the money the company would receive from an investment and to reflect for the time value of money. Diagram 1.
The comparable transactions could also help Guillermo, if they decide to sell the business to the Norway distributors. This major difference with this method is that it takes into consideration the past sales of companies that are structured the same as well as the current market value of the stock. In the case of the furniture business, there are many competitors but not many are structured the same way, and not all are publically traded. Although, if the organization is not acquired this method may not be suitable for analysis. There are different multiple valuations that can be administered to offer alternative to Guillermo Furniture Store, it is up to the managers to determine what the best method to fit the organization and structure.
Guillermo furniture business was impacted by the changes in the Sonora, Mexico business environment. A change in the business community is an indicator that Guillermo needs to adapt to the changes and develop budgets that respond to changes in cost. Cost changes are paramount in determining high-tech solutions or a broker service business. Creating a flex budget and forecasting will help determine how the cost of converting to a high-tech solution versus a broker service. Analyses of the income statement, balance sheet, flex budget, and production data for March was conducted to determine best alternative for the store to remain relevant. First automation (high-tech) will...